Skilled immigrants lead to greater innovation in US workplace

New research from the University of California San Diego School of Global Policy and Strategy shows that hiring high-skilled workers from abroad leads to more innovation in the workplace.

Two assistant professors of economics at the School uncovered their findings through exploring data on H-1B workers and firm production.

“We found companies with higher rates of H-1B workers increased product reallocation – the ability for companies to create new products and replace outdated ones, which in turn, grows revenue,” said Gaurav Khanna, one of the report’s authors. “This discourse could have far reaching implications for US policy, the profitability of firms, the welfare of workers, and the potential for innovation in the economy as a whole.”

The authors merged publicly available H-1B data on Labour Condition Applications (LCAs), which companies have to file every time they want to hire an H-1B employee, with firm-level data from the Nielsen Retail Scanner, which provides information on products.

“There has been a lot of work by economists on the impacts of the H-1B program mostly focused on the wages and employment of native born workers, but little is known about how immigration affects production at the firm level,” said Munseob Lee, the study’s other author. “We find that hiring more immigrant workers is associated with firms introducing new products on the market.”

For instance, the report shows that hiring more engineers and programmers from abroad allows firms to implement incremental innovations that may lead to newer products on the market, enhancing profitability and consumer welfare.

The authors noted while previous studies of high-skill immigration impacts on innovation have focused solely on patent production, the advantage of this study is that it captures incremental innovations that are not usually patented. Product reallocation – the entry and exit of products – has long been seen as an important determinant of firm-level innovation.

“We demonstrate that changes in a firm’s production portfolio is connected to both high-skilled immigration and profitability,” the authors wrote. “In addition, changes in consumer goods products affects the welfare of US consumers.”